Category: Gambling

A Fubo Q3 Earnings Beat Means That The Market Will Have To Relent

Posted on by io-fund

According to critics, the riskiest quarter for fuboTV (FUBO) ("Fubo") was Q2 due to the off-season for major sports in the United States. The company went on to report a 196% YoY jump in its revenue to $130.9M. It was primarily helped by the strong growth in subscription revenue and advertising revenue. Subscription revenue grew by 189% to $114.4M and advertising revenue grew by 281% YoY to $16.5M. It was the fastest advertising sales growth in the company's history.

So much for a tough quarter – but how did Fubo accomplish this? That will be important to look at as the market has overlooked Fubo for its growth and the company has not been rewarded for the ongoing beats and guidance raise. We should clarify and say we think it's the retail market that has overlooked the company while institutions are quietly moving off the sidelines with ownership doubling since February from 229 to 470 institutions.

Source: Ycharts

Below, we will look at Fubo's recent history to form an opinion on why Q3 could be quite strong. We also pulled Apptopia data on downloads and sessions to look at engagement trends. Lastly, we revisit the major catalyst in Fubo's future: sports betting.

Why Fubo Crushed Q2

To call Q2 a seasonally light quarter for sports would mean only the United States is being factored into the analysis. This mistake was also made in Q1 when critics predicted the downfall of Fubo based on March Madness, a tournament that has roughly 17 million viewers.

Fubo's roots are in soccer. Fubo has the exclusive rights in the United States to stream the remaining 70 Qatar World Cup 2022 qualifying matches of the South American Football Confederation. This began in June. Obviously, Fubo will not capture this full TAM, but even a small percentage can have a larger impact than a tournament like March Madness.

Fubo was also able to score some major league baseball deals, such as a carriage agreement with Marquee Sports Network which gives access to the Chicago Cubs games.

Advertising grew from 10% of revenue to 13% of revenue for Fubo in Q2. We have seen the company re-accelerate from 70% during the Covid quarter to 281% in the most recent quarter (that is serious acceleration). Although those high triple-digit numbers can't last forever, it shows how the demand for advertising on the platform will help offset licensing costs as time goes on.

Source: Fubo earnings reports; chart from I/O Fund

The average revenue per user (ARPU) increased 30% YoY to $71.43 and advertising average revenue per user showed a substantial 62% YoY growth to $8.70. Increasing ARPU and an increasing number of subscribers is a solid combination to have when taking market share as it shows the company does not need to discount the product to be competitive.

In addition to the advertising opportunity, the company is also the fastest-growing SVOD platform and is taking market share from competitors. The company had total subscribers of 681,721 (up 138% YoY) at the end of the June quarter, a net addition of 91,291 from the previous quarter. Meanwhile, according to the data from Statista, the global SVOD market in 2021 is expected to grow 23% YoY to $70.8B in 2021 and the US SVOD market is expected to grow 18% YoY to $32.1B.

This supports our original thesis in December that live sports audiences are the last to cut the cord and are the most coveted audience right now for this reason.

The streaming increased in the last quarter as monthly active users (MAUs) watched about 134 hours per month on average, which is reasonable considering Q2 2020 was a quarter where many people spent increased time indoors.

Source: Fubo earnings reports; chart from I/O Fund

Quick Note on Gross Margins

We have noted many times that the company is in a high growth stage and the street is discounting the company for its weak gross margins. However, the company's margins are improving.

In the last earnings call, it was mentioned by the CEO, "50% gross margins will be our long-term target. We will also look to target about $10 to $15 of advertising ARPU based on that 50% margin."

The net loss came at ($94.9M) when compared to ($73.6M) for the same quarter last year and adjusted EBITDA came at ($47.4M) when compared to ($41.9M) for the same period of the previous year. The adjusted EBITDA margin was -36% in Q2 2021 compared to -95% in Q2 2020.

Source: Earnings Presentation

The company's launch of Fubo Sportsbook is an important event to track in Q4. We've covered the sports betting opportunity in detail, including the projection that the industry could reach $155 billion by 2024. fuboTV has a better position than its rivals as they own their audience and it's an upsell rather than a new user acquisition loop. The company acquired Balto Sports and Vigtory to help release the free-to-play and sports wagering. When sports betting launches, we think we will then see Fubo's full monetization potential by combining subscriptions, advertising, and betting for global sports on one platform.

fuboTV CEO David Gandler predicts that nearly 40M to 50M people in the USA will subscribe to digitally delivered video networks in the next five years. He believes that his company can target about 10% of the market.

Q3 Earnings Preview with Apptopia Data

Fubo increased their full-year revenue guidance to $560-$570M, representing a 116% YoY growth at the mid-point, up from the previous guidance of $520-$530M. The subscribers for full-year 2021 are estimated at 910,000 to 920,000, up from the previous guidance of 830,000 to 850,000.

Third-quarter revenue guidance is between $140-$144M, representing 132% YoY growth. Subscribers are expected to be 810,000 to 820,000. The consensus analysts' revenue estimates are close to the higher end of management guidance.

Source: Fubo earnings reports and Ycharts

In the past, we analyzed app downloads and sessions using Apptopia data to look at the health of the mobile app. Please keep in mind, this is not an earnings call as there can be other earnings surprises in terms of gross margins and profits that can cause a stock to sell off after an earnings report. We are also reporting on downloads and sessions, whereas Fubo reports subscribers.Please keep in mind, this is not an earnings call as there can be other earnings surprises in terms of gross margins and profits that can cause a stock to sell off after an earnings report. We are also reporting on downloads and sessions, whereas Fubo reports subscribers.

According to the Q3 data from Apptopia, Fubo's downloads accelerated 98% YoY and 82% QoQ to 2.29M.

Source: Apptopia

The sessions data shows 161% YoY growth and 43% QoQ growth to 176.79M. Please note, downloads show us a glimpse as to new activity but they do not represent subscribers who already have the app downloaded. Sessions help to provide more color, if we assume sessions were comparatively equal across subscribers in previous quarters.

Source: Apptopia

The data below shows a spike in September. The start of the NFL season likely contributed, as well as exclusive coverage for the South American World Cup 2022 Qualifiers (CONMEBOL) in the US.

Source: Apptopia

Fubo also announced its free-to-play games and FanView live stats feature for its September CONMEBOL matches. The players who answer questions correctly during the match get points and have the chance to win cash prizes. The integration of free games and FanView increased the engagement in fuboTV during its beta testing in June and this might also have led to the spike in demand in September.

In the words of David Gandler, co-founder and CEO of Fubo, "We believe this will mark the first time any company has integrated live streaming television, free games and live stats within the same platform, on the big screen. With free games and our upcoming Fubo Sportsbook real-money wagering app, we intend to deliver a truly interactive streaming experience, one that we expect will improve engagement and retention to fuboTV while also driving advertising revenue."

Source: Apptopia

The most important thing we see in this data is that fuboTV broke out of its trendline on monthly sessions and downloads as the month of September marks an all-time high for the year. We will get a quarterly report from the company yet the data helps substantiate on a more granular level that Fubo is capable of sizable growth in a single month. The key takeaway is that September is 46% higher than the previous all-time high met in January during the Super Bowl.

As stated, downloads and sessions don't guarantee an earnings beat, however, as a long-term buy and hold investor, growth like this is what I look for. I also look for evidence that the thesis I formed is playing out. Therefore, I see this data as a positive and the flurry of announcements around sports betting is also a positive.

More Fubo Announcements …

While the market is aptly rewarding DraftKings with a 1-year forward P/S of 11, Fubo has quietly been gathering strength in sports betting while at a 1-year forward valuation of 4.4. We covered why we like Fubo better than DraftKings.

In the third quarter, Fubo completed the Market Access Agreement in Arizona. It also received approval to offer Online Sports Wagering in two states namely, Iowa and Arizona. On November 3rd, the company announced that Fubo Sportsbook is live in Iowa.

Fubo Sportsbook also entered a multi-year partnership with the New York Jets. There will also be a Fubo Sportsbook Lounge at MetLife Stadium for the NFL team's home games.

Fubo Gaming partnered with the Cleveland Cavaliers to promote its brands through various marketing avenues. More recently, it also announced a partnership with NASCAR (The National Association for Stock Car Auto Racing) to become the authorized gaming partner of NASCAR.

Fubo's distribution is also growing. The company announced in September that fuboTV will be available on VIZIO SmartCast TVs. Earlier in June, it launched in LG Smart TVs. fuboTV also announced a distribution agreement with AT&T SportsNet Rocky Mountain.

ROOT Sports and fuboTV announced a distribution agreement in September which will give fuboTV customers access to Seattle Mariners, Seattle Krakken, and Portland Trail Blazer Games. We think these regional adds are important to watch as one metro area has the capability to boost Fubo's user base.

Conclusion

According to the data, September was Fubo's best month this year by nearly 46% (i.e., it's not even a close call with January's Superbowl month). This does not guarantee quarterly performance but we certainly like to see growth trending upwards and we like it when this happens concurrently with new catalysts, such as sports betting. If you think of where this company was during the Covid quarters when live sports was shut down, the comeback has been quite incredible.

On that note, tech growth investing is not for the faint of heart and Fubo has certainly tested investors who prefer clearer financials. However, I've been analyzing OTT tech startups since 2011 and there are certain indicators I look for in terms of analyzing the strength of a product. Fubo hits on many of those indicators and I think investors will either relent if Fubo puts up a Q3 beat or they will get left behind in the dust once sports betting launches. One thing is clear, Fubo is not letting up.

FuboTV: Why I Like This Stock Better Than DraftKings

Posted on by io-fund

This article was originally published on Forbes on May 21, 2021,12:31am EDToriginally published on Forbes on May 21, 2021,12:31am EDT

FuboTV has been dismissed by quite a few analysts and investors for its negative gross margins. This dismissal, that leans heavily on the lagging financials, is reminiscent of the many times that tech stocks have been misunderstood.

As a tech analyst who is trained in product, I see a sizable runway in live sports OTT and sports betting with Fubo having key advantages over DraftKings. The management has to execute, and while the market calls this speculation, I call it a product road map.

First, FuboTV must continue to grow its audience. I made the argument that this is the most essential piece over the coming quarters when the shorts attacked this company. The bearish reports ignored the most important piece to a media company: audience growth. Fubo has handily overcome the challenge of growing its audience year-over-year regardless of the seasonality in sports. The last two quarters could not have gone better in this regard.

Second, FuboTV must execute on launching a sports betting book. This is easier than the public markets think as Fubo has every required ingredient. Most importantly, competitors such as DraftKings do not have all of the essential ingredients that FuboTV has, and we expect Fubo will see a healthy uptake for this product launch. 

You can read my previous write-up on FuboTV here.previous write-up on FuboTV here.

Financials do matter, of course, and as mentioned Fubo is the ultimate challenge for those who rely on financials alone and ignore product. This is because live sports were canceled last year. Short seller reports that dissect a live sports company following covid are exaggerating the effects of a lagging, one-time event. Forward-looking, we have an ad rebound in digital ad spend from 5% last year to 17% this year. Plus, the World Cup is on deck (and hopefully the Olympics) which bodes well for point #1 – audience growth.

The more popular bet is to go with DraftKings. However, DraftKings is a well-known story that is fully priced. We like the risk/reward of Fubo better due to the fact that this particular company is capturing the live sports OTT trend and will be able to convert high-value users for the sports playbook because they own their audience. 

Audience Growth

FuboTV put quite a few triple digits on the scoreboard in the last earnings report, which was the strongest first quarter in company history. Due to the seasonality of sports, Q1 is typically lighter in terms of growth for Fubo, yet the company reported sequential revenue and subscriber growth.

GAAP of -$0.59 missed by $0.03 and included -$0.02 from expenses associated with the launch of sports betting and -$0.02 due to paying off debt related to senior convertible notes.

Prior to the earnings report, we reached out to Apptopia to check the app data on Fubo. Apptopia is a provider of competitive intelligence on mobile applications.

With the information, we issued the following note to our subscribers on April 20th: "Fubo guided to end Q1 with subscribers of 520,000 to 530,000, representing growth of 82% YoY at the midpoint. Data from Apptopia shows that Fubo ended March with approximately 585,000 daily active users (DAU) versus the Q1 guide for 525,000 paid subscribers at the end of Q1Fubo ended March with approximately 585,000 daily active users (DAU) versus the Q1 guide for 525,000 paid subscribers at the end of Q1." 

On May 11th, the company went on to report 105% year-over-year growth and 8% sequential growth for 590,430 MAUs with subscription revenue increasing 131% YoY to $107.1M. Therefore, we were within 6K subscribers on the estimate.

Net subscriber additions were approximately 43,000 versus a loss of 28,000 in the same quarter last year, which the company achieved while reducing sales and marketing as a percentage of revenue. Monthly ARPU increased 28% year-over-year and advertising ARPU was up 57%.

Paid and trial users streamed more than 228 million hours, up 113% YoY. MAUs on average watched 129 hours per month, up 8% YoY.

This is the second time we accurately tracked Fubo’s audience growth with Apptopia data. The first was when we pointed out during a flurry of short reports that the audience growth in Q4 was quite healthy.

According to Q2 data from Apptopia, as of May 12th, Fubo’s growth remains strong on a year-over-year basis. We are currently seeing app downloads tracking at 181% YoY against weak Q2 ’20 comps due to the cancellation of sporting events last year.

Please note that we have extrapolated the data through May 12th to the end of Q2 and we were roughly 46% through the quarter as of last week. 

Note: this data is not for earnings calls and readers must do their own due diligence. We are simply sharing information from a mobile analytics firm, which is one of the many channel checks we do when looking at tech stocks.

Fubo is tracking for a sequential QoQ decline in downloads in Q2, but it should be noted that Q2 is historically a weaker quarter than Q1 for Fubo, as evidenced by 2019 pre-pandemic data.

We are seeing similar trends in average daily active users (DAUs) thus far through Q2, with Fubo on pace for 172% YoY growth and a modest decline sequentially.

Total time spent in the Fubo app is currently on pace for a large YoY increase of 237%, with another modest decline sequentially from Q1. This helps support how sticky Fubo’s product is to its audience.

Fubo raised guidance and expects Q2 revenue of $121M at the midpoint, up 174% YoY, versus consensus of $98.37M, and FY2021 revenue of $525M at the midpoint, up 101% YoY versus consensus of $472.69M.

The company also raised guidance for subscribers. For Q2 the company expects 600,0000 to 605,000 subscribers, up 111% YoY and for the full year expects 830,000 to 850,000 subscribers, up 53% YoY at the midpoint.

Live Sports OTT

Not surprisingly, we saw the biggest drop ever in households with cable packages this past year with a record 7.5% decline. Tech Crunch recently stated the 2020 pandemic accelerated the projected cord cutting rate to 31.2 million households last year and is expected to reach 46.6 million households by 2024.

Even more pertinent, according to a survey compiled by Parks Associates, 55% of cable subscribers state that live sports is an important factor in why they are staying with expensive cable packages. That means of the 77.6 million currently subscribing to cable, satellite and telecom packages, 42 million are live sports fans. This is 10 million more than the size of the current cord-cutting audience, which has taken nearly 15 years to amass (circa 2007).

In September of last year, AT&T paid $3.75 billion for the exclusive rights to segments of major league baseball. This is a renewal of prior contracts and is a 65% increase from their prior exclusive price tag. The fact that ATT is willing to pay a 65% premium from their last contract shows the importance placed on live sports.

We can see a similar evidence as to the value placed on live sports with Amazon’s purchase for the exclusive rights to the Thursday night NFL games through 2033 at an astounding $100 billion.

As an investor, I understand FuboTV will not stream every game in every league, and I am aware exclusive rights to various sports may shift through negotiations. In fact, the Tokyo Olympics may be canceled. However, FuboTV is offering me a pure play and the company only needs to corner a percentage of live sports cord-cutters in order to be successful. FuboTV could end up owning 5% of the market or 20% of the market – both look good from this market cap.

When asked about competitors, Anthony Wood of Roku has stated a few times that any cord-cutting is a windfall for their platform. Similarly, I believe that any NFL fans cutting the cord will be a windfall for Fubo.

On that note, Fubo offers comprehensive sports coverage. According to a March 2021 press release, Fubo offers “42 of the top 50 Nielsen-ranked networks across sports, news and entertainment channels,” plus more than 30,000 movies and TV shows on-demand.

It’s also important to note that Fubo has the exclusive streaming rights to the South American Qatar World Cup 2022. When you consider there are 3.5 billion soccer fans globally, suddenly Amazon’s Thursday night NFL deal doesn’t seem so make or break (far from it, Thursday is the least popular night).

Sports Betting

In the United Kingdom, sports betting is a $20 billion industry today. There are projections that sports betting will be a $155 billion industry by 2024. To find an opportunity with exposure to this market at a $3 billion market cap is worth a closer look.

Fubo acquired Balto Sports on December 1st in the company’s first strategic move to launch free-to-play games this year. Balto Sports develops tools and contest automation software for users to organize and play fantasy sports games and is a Y-Combinator graduate.

There was criticism from the short sellers that FuboTV had bought a headline. Yet, there is nothing unusual about a stealth product that needs to attach the technology to an audience. In fact, Fubo plans to beta test its free gaming experience in the next few weeks and this rapid release is likely due to the incubation period that Balto Sports underwent beginning with its time at Y Combinator. 

In Q1, Fubo acquired Vigtory, a sports betting and interactive gaming company, for $37.2 million. The company was founded in 2019. The company is co-founded by a former gaming executive at MGM Resorts and has regulatory approval in New Jersey. Notably, the app has not gone live which is reflected in the price. 

Fubo Sportsbook is expected to launch in Q4. The company has $400 million cash and is planning to spend less than $50 million to launch sports betting, per the Q1 earnings report. Fubo plans to deliver streaming and gaming in one data analytics platform, offering users a seamless experience. We expect the company will see lower customer acquisition costs as a result of owning the audience. Fubo’s CEO, David Gandler, said during the most recent earnings call that 30% of users are willing to participate in free-to-play, according to surveys done on the platform, while 22% of paid subscribers are willing to place bets on Fubo.

Despite short sellers not seeing how or why a sports betting app could merge with live sports content, we now see DraftKings partnering with Sling/DISH. I guess content and sports betting does go together, after all (yes, I’m being sarcastic!) It’s surprising that the critics said it cannot be done despite Sky Media having the most successful sports betting model globally.

From purely a user acquisition standpoint, in-app ads with your own content is nearly frictionless and you have a mountain of data to effectively target. Fubo’s ability to gather audience data and appropriately market them, with a deep understanding of preferences, is an advantage that is currently understated. Fubo has first-party data and can specifically tailor an experience, which will either result in higher ARPU from betting or higher ARPU from ad spend.

DraftKings, meanwhile, has partnered with the number six over-the-top provider, DISH Network/Sling. We think DraftKings sees the potential threat in Fubo having access to first-party data and a closed-circuit loop for user acquisition in sports betting. Notably, DraftKings faces friction here when introducing a new brand name that is not DISH/Sling. Essentially, whatever DraftKings can do with the #6 partnership, Fubo can do better. For example, Fubo can give free sports content away to high value users who spend over $100 on sports betting and offer other rewards that are not possible unless you own the audience. The CEO talks about this here.

Fubo is already on par with DraftKings in terms of ARPU and has not added sports betting yet. These numbers show that with sports betting, Fubo could potentially see $100 ARPU or greater.

Notably, DraftKings spends an exorbitant amount on sales and marketing at 82% of revenue. This reflects the cost of acquiring users when you don’t own an audience. It’s interesting, of course, that the critics of Fubo do not look at the $1.5 billion in net losses that DraftKings accrues on its bottom line. On a forward basis, DraftKings is estimated to report ($2.82) EPS for fiscal year 2021 compared to Fubo’s estimated ($1.96) EPS.

Notably, despite having 1/3 the revenue and audience size of DraftKings, Fubo is trading at 1/6 the market cap. It’s not hard to see the potential here, and clearly a healthier bottom line isn’t the reason that DraftKings trades at a 300% higher valuation.

Conclusion:

We officially recommended FuboTV in October and did not hesitate to challenge the shorts in January before the last two earnings reports confirmed the company’s strong growth. We specialize in spotting opportunities in tech growth based on product and we were the first analyst (anywhere) to recommend Roku, we were very early to call Nvidia the future for AI during the crypto bust nearly two years before AI drove the data center segment, and we said Zoom’s product would go viral six months before covid.

We are not concerned with broader market weakness that affects short-term price movements. Instead, we look for companies that are executing on a product road map, are capturing a microtrend and are able to scale. Not only do we think Fubo can do this, but we think Fubo will overtake DraftKings in the next 2-5 years.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

FuboTV: Solid Positioning For Sports Betting

Posted on by io-fund

This article was originally published on Forbes on Dec 31, 2020,11:45pm ESTForbes on Dec 31, 2020,11:45pm EST

Recently, FuboTV has been hit hard by short sellers. The criticism is based on FuboTV’s trailing financials and negative gross margins. We recommended FuboTV at $16 and have a blended cost basis of $20.10 and want to take this opportunity to connect a few dots on this company for anyone interested in hearing why we remain long.

Our analysis starts with audience growth because this is the predominant key metric in media. We also discuss the financials including the forward guidance. Lastly, we discuss why live sports OTT is a unique opportunity and why we think FuboTV is positioned well for free-to-play fantasy games and sports betting.

The main argument against FuboTV is the negative margins. This is a lagging argument as the company has laid out a path to increase monetization through sports betting. We are in a speculative period for this, however, we spell out a few key reasons we think the company can execute on this new path for monetization.

Key Metrics and Financials:

Fubo TV announced Q3 results on November 10th, the company’s first earnings report since its October IPO. Management described the quarter as the “strongest in company history.”

Revenues of $61.2 million increased 47% YoY on a pro forma basis, or +71% excluding 2019 licensing revenue from the FaceBank AG business, which was sold in July 2020. 

Subscription revenue increased 64% YoY to $53.4 million, while advertising revenue increased 153% YoY to $7.5 million. Paid subscribers grew 58% YoY and totaled 455K at the end of the quarter, an acceleration from the 42% subscriber growth the company posted last quarter.

Fubo Press Release

Average Revenue per User (ARPU) increased 14% YoY to $67.70, while total content hours streamed by FuboTV users (paid and free trial) in the quarter increased 83% YoY to 133.3 million hours. Monthly active users (MAUs) watched 121 hours per month on average in the quarter, an increase of 20% YoY.

Operating margins were -145.9% and gross margins currently stand at -16%. This would be a concern if FuboTV had not outlined a new path for monetization (see below). Related expenses and sales & marketing expenses increased by 20% and 60% respectively in Fubo’s latest quarter.

Management noted that they use adjusted contribution margin to measure variable costs against subscriber revenue. In Q3, adjusted contribution margin was positive 16.1%, up from 0.5% in Q3 2019. 

The company is expecting margin improvement over time, as discussed in its Q3 Shareholder Letter:

“We expect margin improvement to continue over time, aided by a number of initiatives. This includes the growth of advertising on our platform along with strong attachment rates on value-added services, such as cloud DVR storage and the ability to stream on multiple devices.”   

The company also raised Q4 and FY guidance significantly. Management now expects Q4 revenues to be $80-85 million, a 51% to 60% increase YoY. They also expect to end Q4 with 500,000-510,000 paid subscribers, an increase of 58% to 62% YoY. 

As a result, FY 2020 revenue is expected to increase 65% YoY to $246M. Most impressively, management is guiding for an acceleration of revenue growth in 2021 to 70% YoY, with total revenue reaching $415-435 million.

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FuboTV App Downloads and Sessions:

The short seller report from Kerrisdale Capital did not name the source of the app intelligence it was quoting. There is no reason to not name the source as app download and session data is factual and inherently unbiased. This is the first I’ve seen data referenced in any article or report without the source being named.

There are three main providers for app intelligence: Apptopia, AppAnnie and SensorTower. Apptopia has provided the following data showing that downloads are up for the quarter from 1.16M in Q3 2020 to 1.53M in Q4 2020.

Apptopia

According to Apptopia, FuboTV is up about 50% year-over-year on downloads from 1.001 million in Q4 2019 to 1.53 million in Q4 2020 and up about 70% in sessions from 84 million in Q4 2019 to 143.7 million in Q4 2020.

Apptopia

There is a dip in December when broken down monthly on downloads but sessions remain strong. This does not include a full month as the data was pulled through December 29th.

Apptopia

Despite downloads being lower on a monthly basis, we see sessions are higher in December than September. Downloads could also be affected by new subscribers joining for football at the start of the season, therefore, these fans already having the app downloaded. For this reason, sessions are important to cross-reference.

Apptopia

We think the dip in December downloads should recover with the start of the basketball and hockey season to create a new seasonal spike in downloads. The NFL Network is a competitor and has exclusive content while basketball does not.

SensorTower data does not raise any flags either although it appears the viewership is lumpy with more popularity on the weekends. In this picture, Fubo is green, Youtube is blue and Sling is red.

SENSORTOWER

FuboTV looks similar on the iPhone where weekends are more popular.

SENSORTOWER

Here’s more information regarding how FuboTV’s website traffic has recovered nicely since April when there were no live sports. We see no issues here. Notably, this does not include December.

WEBSITE IQ

Apptopia is available through the Bloomberg Terminal and along with SensorTower was used to predict the spike in Pinterest from iOS 14, Disney Plus downloads when it first launched and the recent information on HBO Max being the fastest growing SVOD service.

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Live Sports:

Live sports is known as the “holy grail” because it’s the last stand for cable television. Loyalty to live sports is the primary reason as to why customers have not cut the cord with 81% of sports fans subscribing to pay-TV and 91% stating they subscribe to pay-TV for access to games. According to Pricewaterhouse Coopers, 82% of live sports fans have stated they would cut their subscription if they could access live sports elsewhere.

This is substantiated by the fact FuboTV – a relatively unknown name —- can command a high fee for its content of $65. This is three times more than Netflix. We are less concerned with the margins at this time and more interested with how Fubo has been able to compete with the largest MVPDs on price – Comcast, Charter, Hulu+ and YouTube — and most importantly, what the willingness to pay a high subscription fee could mean for free-to-play fantasy games and sports betting in the future.

Sports Betting:

FuboTV has stated they will first go into fantasy league free-to-play games and then move into sports betting. FaceBank is a company that is known for its animated digital humans, such as Tupac Shakur during Coachella. However, more importantly, the merger gives FuboTV access to the Facebank Group’s Nexway e-commerce and payment platform with a presence in 180 countries.

We think this payment platform will be useful for global sports wagering and will help FuboTV scale for sports wagering quickly.

Per the April 2020 press release:

fuboTV intends to continue its global expansion with FaceBank’s Nexway AG, a global ecommerce and payment platform with a business presence in 180 countries, accepting payments in roughly 140 currencies.

Please note: This article is updated to reflect that Nexway was sold and is no longer part of the merger with FuboTV, per a disclosure on November 16th. The tool that FuboTV will use to expand into fantasy games is Balto Sports, acquired in early December by FuboTV. Balto Sports is a graduate of Y Combinator, the incubator that has worked with many startups including Stripe and AirBnB in their early days. Balto Sports is co-founded by Joe Montana’s son and has the ability to become a sports book.

Over the past few years, Sky Media led investment rounds in FuboTV along with Fox for a 39% stake. This investment round was increased in late 2017/early 2018 with Sky Media holding Board positions. The former NBA commissioner was also part of the last $15 million round. Media has gone through some very big M&A shifts at the top-level with Comcast acquiring Sky and Disney acquiring 21st Century Fox. However, for FuboTV’s formative years, the company was influenced by arguably the top sports betting company in the world – Sky Media from the UK. The Comcast-owned Sky Media is still a backer for FuboTV along with Disney.

We think FuboTV is an excellent route for these more traditional media companies to have exposure for free-to-play games and sports wagering without involving their mainstream entities, like Hulu. Sports betting can be controversial and FuboTV allows the content to be funneled to another MVPD. We see the same thing happening with DraftKings – where Fox was a backer, and now through acquisition, Disney.

There are debates on who will dominate the free-to-play fantasy and wagering market in the United States but the successful model to replicate is nearly unanimous – which is Sky Media’s model. The company has numerous brands for betting and fantasy football (soccer) and is the largest betting organization in the UK by number of subscribers. Perhaps it is simply a coincidence that Sky Media has been the largest stakeholder in FuboTV along with Fox over the past few years — and now FuboTV is pursuing a similar monetization path as Sky Media – but we don’t think this is a coincidence. We like this synergy and the direct access Fubo has had to Sky in its formative years.

Analysts:

Perhaps the most compelling thing about the market’s reaction is how quickly short sellers with less of a track record were listened to over sell-side analysts who must maintain a high level of credibility. (In one case, the short seller has a #17,000 rank on TipRanks!)

If the company is going bankrupt soon, then the following analysts have produced the first goose egg in their careers.

BMO Capital (12/23):

BMO Capital Markets analyst Daniel Salmon downgrades from Outperform to Market Perform. The big move had taken the stock well north of his $33 price target, which is now lifted to $50. Salmon says FUBO offers "a more promising path to profitability than most new investors expect," but secular and execution tailwinds are already included at this valuation. His raised price target remains lower than last night's close, with Salmon saying the downside "is more a reflection of recent volatility than an incrementally negative view.

Wedbush (12/16):

Wedbush analyst Michael Pachter initiated coverage of FuboTV with an Outperform rating and $40 price target. The rating is initiated as the analyst expects cord-cutting and cord-shaving to continue for the foreseeable future, and thinks that a sizeable portion of the population will grow up as 'cord-nevers', preferring customized content.

Needham (12/22):

Needham boosts its rating on FUBO to Buy from Hold off the 2021 upside drivers it sees for the company. "We believe FUBO will continue to have strong upside momentum into 2021 owing to: a) FUBO is taking share from competitors; b) its Hisense partnership lowers SAC; c) upside from sports betting; d) OTT multiple expansion; e) short covering; and, f) CTV upside," sums up analyst Laura Marting on the bull case. Despite the huge runup in share price since fuboTV's debut in October, valuation is called inexpensive in comparison to OTT comparables.

Roth Capital (12/22):

FuboTV price target raised to $55 from $36.50 at Roth Capital. Analyst Darren Aftahi raised the firm's price target on FuboTV to $55 from $36.50 and keeps a Buy rating on the shares. Recent market research from Antenna suggests FuboTV gained share from larger virtual multichannel video programming distributors Hulu and YouTube TV in the months of October and November, growing 100 and 200 basis points, respectively, from September to 19% in November, Aftahi tells investors in a research note. While part of this gain can be attributed to seasonality around the launch of the football season in the United States, the overall market trend of cord-cutting, along with FuboTV's growth initiatives, should lead to a higher subscriber outlook for the first half of 2021, says the analyst. Aftahi says share gains, categorical growth, further implementation of artificial intelligence to aid acquisition and retention, and the rollout of an initial entree into sports betting expected in fiscal 2021 substantiate his "bullish thesis" on FuboTV.

Oppenheimer (12/7):

FuboTV price target raised to $30 from $21 at Oppenheimer. Oppenheimer analyst Jason Helfstein raised the firm's price target on FuboTV to $30 from $21 and keeps an Outperform rating on the shares after hosting meetings with the company's CEO and CFO. While management sounded confident in its ability to meet near-term targets for core subscription/advertising, the majority of investor focus was on the recent acquisition of Balto Sports, marking FuboTV's first move toward online sports betting, the analyst notes. While there are clear synergies between live sports content and OSB, Helfstein acknowledges that there are significant hurdles to enter this market. However, he is taking a first "stab" at sizing the OSB opportunity at $742M, assuming $295M in 2020 revenue based on a 16% attach rate and comparable margin structure to OSB leaders.

Is FuboTV the next Roku?

I was the first analyst to cover Roku at $30 and to discuss its story at length. While the market argued it was hardware; I detailed how it was an ad exchange and why that was important. This was before Roku reported any ad revenue in its fundamentals. Now, as you know, Roku has more ad revenue than hardware revenue and the market now “likes” Roku for Connected TV ads.

Source: Knox Ridley on Twitter

One argument I’ve continually made is that SVOD (subscription video on demand) is a mature market while AVOD (ad video on demand) is many years behind because Pay-TV advertisers had not migrated. This is why Roku was a developing story while Netflix is a mature story. The market has had a very challenging time understanding where Roku is in the hype cycle.

Of course, FuboTV is not like Roku because it is not an operating system or ad exchange. However, it’s important to know that FuboTV is in the most nascent area of OTT and the peak growth will be years behind Roku due to live sports being the last content type to convert to linear OTT.

Therefore, to require a perfect story and fundamentals right now in linear OTT for live sports is incredibly myopic. Investors will need to come back in two years to find a better fundamental story in linear OTT live sports — and they must be willing to have fewer gains for a surer thing. What short sellers are calling a dumpster fire is actually a market in its infancy. We are not dealing with just a general linear OTT channel. The product is live sports and this was the last to convert for cord cutters.

What Roku and FuboTV do have in common is solid subscriber growth and high ARPU. They’re also both continually under pressure from the market due to margins. Netflix, for that matter, has also been continually attacked for its free cash flow margin. We understand that licensing and distributing sports content has created an issue with margins but we also know that small companies with loyal audience can (and do) successfully pivot frequently.

Although we agree with the short sellers that the gross margins need improvement, that is the only thing we agree with them on. The rest of the reports were opinions that offered no citations on the data. The quotes and sources “from experts” were also unnamed. Finance is a regulated industry and we feel any data or interviews that cause people to lose money should be sourced.

Notably, the shorts had great timing. There was a run-up in price and an over-extension on the technicals and the reports came out during a period of low volume over the holidays (one report came out on Christmas Eve). The reports were also timed to the lock-up expiring. As far as timing goes, it was a perfect storm.

Regarding valuation, there are concerns about the number of shares that have become available which stands between 140 million, according to Oppenheimer. Keep in mind, DraftKings has a similar subscriber number in the 500,000 range and FuboTV makes similar revenue as DraftKings did in 2019 — yet DraftKings trades at a high valuation of 36 with a $18 billion valuation. If Fubo cracks sports betting on the same size audience (that is growing at and proven to already spend a sizable $65 for month for their content) then we think it could end up there.

Conclusion:

We believe the company will be successful in its pivot to a new monetization method as pivoting is something that nearly every small company does as they look for product-market fit. What matters for a pivot is the audience. This is the core strength to any media company and FuboTV’s key metrics are strong. If the audience continues to grow, then FuboTV has a high likelihood of delivering its new path of monetization which is free-to-play fantasy to maintain growth and reduce churn, and later, sports betting to increase revenue and improve margins. As stated above, sell-side analysts believe sports wagering could come as soon as fiscal 2021.

To conclude, we are long FuboTV and our thesis is not changed at this time.